CNH Industrial NV

Note 12: Income Taxes

CNH Industrial N.V. and its subsidiaries have substantial worldwide operations and incur tax obligations in the jurisdictions in which they operate. The Company's provision for income taxes as reported in its consolidated statements of operations for the year ended December 31, 2024, of $336 million consists almost entirely of income taxes related to subsidiaries of CNH Industrial N.V.

The sources of income before taxes and equity in income of unconsolidated subsidiaries and affiliates for the years ended December 31, 2024, 2023 and 2022 are as follows:

The provision for income taxes for the years ended December 31, 2024, 2023 and 2022 consisted of the following:

CNH Industrial N.V. is incorporated in the Netherlands but is a tax resident of the United Kingdom ("U.K."). The reconciliation of the differences between the provision for income taxes and the statutory rate is presented based on the weighted average of the U.K. statutory corporation tax rates in force over each of the Company’s calendar year reporting periods; specifically, the tax rate are 25.0%,23.5% and 19.0% for the years ended December 31, 2024, 2023 and 2022, respectively. Reconciliations of CNH’s income tax expense for the years ended December 31, 2024, 2023 and 2022 are as follows:

(1) These balances were shown within "Other" in previous periods. In the current period, they have been presented separately. Prior period amounts have been reclassified for comparability.

The change in tax expense in 2024 as compared to 2023 was largely attributable to lower profit-before tax and the tax impact from Argentina's highly inflationary economy as identified in the table above. The 2024 tax expense was also reduced by the recognition of $29 million of previously unrecognized deferred tax benefit assets in China, offset by the de-recognition of $35 million of deferred tax assets in Argentina, increases in withholding tax on dividends, and lower benefits from U.S. exports.

The decreased tax expense in 2023, as compared to 2022, was largely attributable to the recognition of $99 million of previously unrecognized deferred tax assets in the United Kingdom, lower profitability in high-tax jurisdictions as a percent of total profit, higher credits and incentives, and the tax benefit related to the sale of CNH Industrial Russia, offset by increases in the tax rate due to the tax impact from the Argentina highly inflationary economy and discrete tax expense associated with prior periods.

At December 31, 2024, undistributed earnings in certain subsidiaries outside the U.K. totaled approximately $13 billion, of which $2 billion could give rise to tax costs upon distribution. The company has not recorded a deferred tax liability related to its undistributed earnings because the remittance of earnings to the U.K. would either incur no tax, or because such earnings are indefinitely reinvested. The Company has determined the amount of unrecognized deferred tax liability relating to the $2 billion of undistributed earnings that would be taxable if distributed was approximately $136 million and was attributable to withholding taxes and incremental local country income taxes in certain jurisdictions. The repatriation of undistributed earnings from subsidiaries to the U.K. is generally exempt from U.K. income taxes and as such there is no deferred tax liability associated with the receipt of undistributed earnings by the U.K. tax-resident parent entity from its subsidiaries in non-U.K. jurisdictions. Finally, the Company evaluated the undistributed earnings from joint ventures in which it owned 50% or less and recorded $10 million of deferred tax liabilities as of December 31, 2024.

Deferred Income Tax Assets and Liabilities

The components of net deferred tax assets as of December 31, 2024 and 2023 are as follows:

Net deferred tax assets are reflected in the accompanying consolidated balance sheets as of December 31, 2024 and 2023 as follows:

Valuation Allowances

As of December 31, 2024, the Company has valuation allowances of $183 million against certain deferred tax assets, including tax loss carry forwards, tax credits and other deferred tax assets. These valuation allowances are primarily attributable to certain operations in Argentina, Germany, and the U.K.

CNH has gross tax loss carry forwards in several tax jurisdictions. These tax losses expire as follows: $23 million in 2025; $4 million in 2026; $4 million in 2027; $6 million in 2028; $288 million in 2029 and beyond. CNH also has tax loss carry forwards of approximately $730 million with indefinite lives. CNH has tax credit carry forwards of $51 million of which $9 million will expire in 2026, $2 million will expire in 2027, $5 million will expire in 2028, and $35 million will expire in 2029 and beyond.

Uncertain Tax Positions

The Company files income tax returns in multiple jurisdictions and is subject to examination by taxing authorities throughout the world. The Company has open tax years from 2006 to 2024. Due to the global nature of the Company’s business, transfer pricing disputes may arise, and the Company may seek correlative relief through the competent authority processes. The Company has considered the possibility of correlative relief when booking contingencies related to transfer pricing. The lapsing of statutes, closure of currently on-going audits, or initiation of new audits in the next 12 months is not expected to have a material adverse effect on the Company's financial positions or results of operations.

A reconciliation of the gross amounts of tax contingencies at the beginning and end of the year is as follows:

As of December 31, 2024, there are $268 million of unrecognized tax benefits before consideration of interest and penalties and $304 million of unrecognized tax benefits after consideration of interest and penalties that if recognized would affect the effective tax rate.

The Company recognizes interest and penalties accrued related to tax contingencies as part of the income tax provision. During the years ended December 31, 2024, 2023 and 2022, the Company recognized expense of approximately $22 million, $7 million and $6 million for income tax related interest and penalties, respectively. The Company had approximately $47 million, $25 million and $19 million of income tax related interest and penalties accrued at December 31, 2024, 2023 and 2022, respectively.

The Organization for Economic Cooperation and Development (the "OECD") has proposed a global minimum tax of 15% of reported profits ("Pillar Two") that has been agreed upon in principle by over 140 countries. Pillar Two legislation has been enacted in one or more jurisdictions in which the Company operates and the Company has determined it is within the scope of the legislation. The Company has assessed the impact of the Pillar Two legislation and related transitional safe harbor provisions and does not expect the tax impacts of the legislation to have a material impact on the Company's financial results during 2024.